Financial institutions, asymmetric information and capital structure adjustments

Capital structure studies of financial institutions have observed identical facts to those of non-financial corporations, especially in relation to capital structure adjustments (dynamic trade-off theory) and asymmetric information. This study examined data from 64 NYSE-listed financial corporations for 91 quarters through Johansen-Fisher panel cointegration model. The target capital structure was measured by the average D/E for the entire period and asymmetric information was measured by Corwin-Schultzs S_2. The results were controlled by traditional determinants of capital structure and indicated the existence of target capital structure for financial institutions, with deviations and corrections in relation to the target presenting long-term relationship with asymmetric information. The findings presented robustness with different measures of target capital structure and dynamic panel data methods. It is concluded by consistency with dynamic trade-off theory and anticipation of financing decisions of financial institutions through the computation of the measure of asymmetric information. (C) 2020 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.